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5 ways Indemnity Insurance could save your business from disaster

Written by

Shaun McGowan

If your business is based around giving advice or providing a service (rather than a tangible product) you face a very serious risk: a claim of professional negligence. If you do something in the course of your work that costs one of your clients money, then they can take legal action against you to recover their losses.

The consequences of a negligence claim can be very severe. Your legal defence alone could cost tens of thousands of dollars. And if the claim against you is upheld, you could face six-figure compensation payments. Oh, and your personal assets are on the line as well as your business and reputation, since you can be personally sued for damages if you are found to have been professionally negligent.

PII covers you for both legal costs and damages – making it an important investment for any size and type of service business.

Of course, as a skilled professional the chance of making a mistake is slight, so you may feel that PII is an unnecessary expense. But unfortunately you don’t actually have to do something wrong to face a negligence claim – a client only has to BELIEVE that you are responsible for their losses to sue for damages (and it can be very hard to prove either way what impact your advice has had).

Here are 5 ways you could end up facing a negligence claim (a potential disaster for your business if you do not have adequate PII in place):

1. You could actually make a mistake

Everyone is fallible sometimes. And if you employ people in your business you are responsible for their actions as well as your own. Even a small, innocent error could result in big losses – for example, if one of your team were to accidentally mail a file containing sensitive corporate data to the wrong person.

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2. A client could hold you unjustly accountable

It can be hard ascertain whether your actions have actually caused harm, or to prove what might have happened if your client had not consulted you. For example, if you provide financial advice based on current market conditions, but an unforeseeable event causes a change in sentiments and results in your client losing money, they could seek compensation for their losses from you (even though your advice was given in good faith and was suited to the circumstances at the time it was given).

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3. Your security could be breached

Under Australian privacy laws you have a very strict duty to protect your clients’ sensitive data. Should someone hack your system, for example, and access that information the resulting breach of confidentiality could leave you facing negligence claims from numerous clients.

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4. You could rely on inaccurate information

Depending on the nature of your business you may rely on data provided by your clients as the basis of the advice or services you provide. Should that information contain errors, omissions or even deliberate falsehoods, you could give inappropriate advice that leads to potentially major financial losses. This is a particular risk for accountants and auditors, financial advisors and management consultants. In some roles, such as that of SMSF Auditor, you have a legal duty of care to verify the information that has been provided to you.

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5. You could accidentally infringe intellectual property rights

If you work in creative arts, for example as a graphic designer, you face the risk of being sued for plagiarism if you produce work that is too similar to someone else’s. This can be entirely accidental, as it’s very hard to conduct an exhaustive check of existing content before publishing your work. The outcome could very costly though, as your client may have to withdraw and recreate any materials carrying the disputed IP.

There are lots of ways you could end up facing a negligence claim, which could spell disaster for your business if you are not prepared to defend yourself. PII covers both your legal costs and any damages awarded against you, making it a vital investment if you want to keep your hard-earned business safe.


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About the Author

Shaun McGowan from



Shaun McGowan

Shaun is the founder of and is determined to help people pay as little as possible for financial products. Through education and building world class technology. Previously Shaun co-founded and Lend.


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